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Paying into social security

Category: The Teacher's Lot

Many a beleaguered academy owner is out there fighting for survival in the TEFL jungle, and one of the main ways to stay competitive is to cut costs, their main expenses being advertising and teachers’ salaries. A lot of academies try to save money and gain flexibility by not hiring many full-time teachers.

 
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William Christison
William Christison

Teaches English classes in companies and in his own private home.

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This is because it’s hard to fill a 25-hour contract because most classes are given at peak times: early morning, lunchtime, and late evening, which means full-time teachers tend to be underhours, especially during slow times of the year. So instead of having, say, twenty full-time teachers, many opt to have forty part-time teachers.

The problem for teachers is how to make ends meet when you only have part-time work. One solution is, besides the academy work, teaching some private classes. But here’s the rub: the academy is only paying half of your social security, which means if you retire here, you’ll only get a small pension, probably below the poverty level.

However, the amount of your pension depends on how much social security you’ve paid in the last 15 years of your working life, ages 50 to 65. So teachers don’t really have to worry about this, until you hit 50! Then you should try and pay in as much as possible. A good way to do this is to become a free lance teacher (autónomo), where you’re really hammered: I’ll just say I’m currently paying 250 euros a month.

However, even if you have fulltime academy work, because Spain is striving to be “business friendly”, academies don’t have to pay nearly as much social security as we do. I’ve just checked an old pay slip from when I was working fulltime at an academy and it looks like they paid about 80 euros a month for me; and I’ve just checked a more recent pay slip for part-time work and it looks like they paid 60 euros. So if you’re getting near the half-century mark and doing fulltime academy work, you may want to start doing (taxable) overtime to boost your payments.

Actually common wisdom has it that besides the state pension fund, it’s very smart to have a private one. Unfortunately at present I don’t have the wherewithal to spread my metaphorical eggs around, so I’m just paying into the Spanish system and praying it doesn’t go bust when I retire, which it might actually. Scary.
  
Steven Starry

There are a couple of other very important points to point out here. Your pension is based on the number of years you’ve worked in the system and each year is based on the total number of hours that you’ve worked. Teachers rarely rack up more than 6 months per year worked so that when they actually retire, they’ll only receive a fraction of what they otherwise might have gotten. I personally have to work up to the age of 67, NOT 65, in order to receive 100% of my pension, which will be pretty bad as it stands. So, in order to receive a worthwhile pension, you have to raise the amount you pay as an autónomo to more than 250 a month, as that will give you a minimalist pension. Also, you may have to notify the social security that you are going to raise your payments at the age of 49 before you turn 50 if you want to raise it very much. You can raise it to about 850 euros which would give you a pension of 2,500 or more euros, I forget the exact numbers. The best part of it is for families because this doubles as a sort-of life insurance policy because you’re spouse will receive 50% of this as a widow and children under the age of 21 receive 25% I believe. Now, let’s just hope we can find work in order to pay into the system in the first place. Also, double check all this information long before you make any decisions.

By the way, I’ve checked into private pension plans via OCU’s Dinero y Derechos and they recommended at the time that none of them were worthwhile and that the best pension plan was just raising the amount you pay into social security. I’d like to hear it if anybody has anything different to add.

David Overton

Excellent article Steve. I’m always surprised at how many little treasures you have hidden about your website. And you make some excellent points. I’d forgotten about having to change your tax bracket when you’re 49.

However, I thought that didn’t apply to autónomos. I was looking into all this about a year ago and if I remember correctly, autónomos can opt to pay more even if they’re over 49. I’ve looked at the notes I took and have been trying to make sense of them. I believe I wrote that an autónomo can opt to put in a maximum of 1,601 euros a month, and I was told that paying in 250 euros a month as an autónomo plus working part-time in an academy, that my retirement, assuming that social security doesn’t go bust or whatever, would be about 1,600 euros a month.

Steven Starry

May 31, 2009 update: I hadn't considered a mix of hours both as an autónomo and on a contract. I'll have to do so as I'm accepting a full contract on Social Security (not autónomo) as of October. I'll have to look into it soon as the big 49 is looming closer and closer. However, as far as I know, that applies specifically to autónomos. We can actually decide how much we pay into the system.




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